Contested Internet TV service Aereo setting up in state

A new television service is scheduled to launch in 11 Wisconsin counties in early 2014, offering customers basic channels for a subscription price starting at $8 per month — provided the service survives lawsuits from broadcasters who say it steals their copyrighted material.

Already, Aereo Inc. has expanded throughout the New York metropolitan area, Boston, Atlanta, Detroit and five other cities — with plans to enter Chicago and much of central Wisconsin soon.

The upstart service is positioning itself as a cheaper alternative to cable or satellite TV. It converts television signals into computer data and sends them over the Internet to subscribers' computers, mobile devices and Internet-ready televisions. Customers can watch channels live or record them with an Internet-based digital video recorder.

Consumers want more choice and flexibility in how they watch television, and they don't want to be locked into expensive, outdated technology, said Aereo spokeswoman Virginia Lam.

The company says it will launch service in Wisconsin counties including Dane, Rock, Green, Lafayette, Grant, Iowa, Columbia, Sauk, Richland, Juneau and Marquette in the first three months of 2014 — although start dates in Chicago and some other areas have been delayed and the schedule is not firm.

Aereo was attracted to Dane County, especially, because of Madison and the University of Wisconsin student population.

From a data center in Madison, the company plans to cover the rest of its Wisconsin territory, including individual homes in the rural counties.

Aereo relies on tiny antennas in the company's data centers that pick up local over-the-air broadcast signals and retransmit them via the Internet to customers. The online television service is available to customers with an Internet connection speed of at least 768 kilobits per second, although faster speeds are better for higher picture quality and uninterrupted viewing.

The technology will adjust itself to the broadband speed it's detecting.

Aereo isn't appealing to broadcasters who don't receive revenue from the company lifting their signals and retransmitting them to paying customers.

They say Aereo's system takes advantage of a perceived loophole in federal law and is aimed at avoiding copyright laws and paying for the broadcasters' material.

Television networks including Fox, ABC, CBS, NBC and others have sued, saying Aereo copies and retransmits their programs without permission.

"We think ultimately the courts will declare Aereo to be a copyright infringement. It might take a year or so, but there's a likelihood the U.S. Supreme Court will get this case because there are conflicting opinions from different courts on Aereo and a similar service," said Dennis Wharton, a National Association of Broadcasters senior vice president.

"It's pretty clear to us that you can't take media content you don't own, resell it, and not compensate the owner. And that is what we think Aereo is doing," Wharton said.

Loss of fees growing

Broadcasters say the retransmission fees they stand to lose from Aereo and similar services not paying for their content are becoming more substantial and could undermine the business model of television networks and their local affiliates.

"There won't be a thriving local broadcast business" should that happen, Wharton said, adding that Aereo shouldn't be treated differently from a cable company that pays retransmission fees for the right to use broadcasters' copyrighted material.

"We think the retransmission fees are reasonable, given the fact that broadcasting provides 35% of the viewing (content) in pay television households," Wharton said.

Thus far, lower courts have ruled in Aereo's favor. The company says because it provides each subscriber with their own tiny antenna, housed in the regional data center, it's no different from selling them a pair of rabbit ears mounted on a television set and watching TV for free.

The company's backers include billionaire Barry Diller, who started Fox.

Aereo faces some tough court fights, but the significance of Diller's support shouldn't be underestimated, said Barry Orton, a University of Wisconsin-Madison telecommunications professor.

"You know that he has thought this through and has every angle covered," Orton said. "And no matter what happens, he always seems to make money."

Aereo could be appealing to customers because, even though it's a stripped-down channel offering, the service is currently priced low and is suitable for tablets and smartphones as well as televisions.

"I think the real key is you aren't paying for things you aren't watching. There's some savings in that. But once you get used to the service, the price is likely to go up exponentially over time," Orton said.

Cable industry watching

The perceived loophole Aereo has used to launch its service has caught the attention of the cable industry, which has clashed with broadcasters over retransmission fees.

"What Aereo is doing to bring broadcast signals to its customers is interesting. If it is found legal, we could conceivably use similar technology," said Mike Hogan, a spokesman for Time Warner Cable.

Aereo has provided a lot of utility to the notion that public airwaves are indeed public, said Andrew Petersen, spokesman for TDS Telecommunications Corp., a Madison-based provider of cable and other telecom services.

TDS says it has engaged in limited discussions with Aereo.

The new company needs a robust broadband connection, which TDS offers, in order to sell its service. TDS could benefit from additional broadband customers attracted by Aereo, or it could partner with the company to offer some broadcast channels.

"They have created a very strategic wedge in the traditional conflict between cable providers and broadcasters, so everybody has an insatiable interest in how this plays out," Petersen said.

Aereo says it will use social media and online banner ads to advertise its service in Wisconsin, if the company launches here as planned. Currently, metropolitan Milwaukee is not on the company's list of prospective service areas.

Aereo says it preferred Madison because high-speed broadband is available almost everywhere in the city and there's a huge number of mobile devices such as tablets.

"Madison felt right, given the community and how large the university presence is there," said Lam, a graduate of Northwestern University in Chicago.

Aereo doesn't have an exact launch date for Madison and the 11 counties, but the area is part of the 22 cities the company says it plans to offer service in by April.

After that, Lam said, the company will take a pause before it announces a second expansion that will include about a dozen more cities.

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About Rick Barrett

Rick Barrett covers manufacturing, telecom and agriculture. He has received Best in Business awards from the Society of American Business Editors and Writers and was co-recipient of a Barlett & Steele award for investigative business journalism.